why is the US dollar so weak now compared to the UK pound or Euro?
i keep hearing inflation, low interest rates, credit crisis, high oil prices, etc… but how do these all tie together so that the USD buys so much less now?
thanks!
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Tagged with: credit crisis • dollar • hearing • interest • low interest rates • oil prices • tie • uk pound • USD
Filed under: Currencies
The dollar is weak and will get weaker because we keep making more,when there is more of anything the price drops.The US government makes credit easy to get,every debt has a dollar amount so every loan creates money instantly as a blip on a screen.US government spending (debt) is growing and taxes are not keeping up and the difference is becoming greater.Everybody knows that the US will keep making dollars so they are not going to pay much to get a pocketfull.
Americans get loans on their houses to buy new cars which is a loan producing a loan.Borrowing is now just a form of paycheck,people think they can refinance if they borrow excessively.Prices increase so people borrow to buy things such as gas which is fine,but if wages go up borrowing to buy labor is seen as evil.Fewer Americans will travel internationally because of the expense,they will go to Disney World on credit.
The dollar’s continued weakness against foreign currencies means their imported goods and services cost more and our exported goods and services go for less.
You can see this as a problem or an opportunity depending on your point of view. The U.S. has a huge trade deficit – we import much more than we export.
This trade deficit means we send a large amount of capital overseas, in addition to jobs. Theoretically, a weaker dollar means our exports become more competitive and this could spur increased production domestically.
Weak Dollar Good?
This may be good news for some U.S. manufacturers, especially those threatened by foreign competitors. However, it they rely on foreign parts or materials, they will have to pay more as the dollar continues its fall.
American consumers will see some of their favorite products rise in price as imports reflect the devalued dollar used to buy them. Foreign governments continue to try to slow the fall of the dollar by investing heavily in U.S. Treasury notes. Their efforts may have slowed the decline, but not stopped it.
What Should Investors Do?
No one knows how long, how far, or how fast the dollar will fall, so preparing an exact investment strategy is difficult.
However, here are some things to consider:
Consider investing in companies that have significant overseas sales operations that can take advantage of the currency valuation differences.
Look at domestic manufacturers that may become more competitive. The falling dollar is not going to bring back the industrial economy, but it may push some marginally profitable companies into the black again.
If you are holding a handful of low-interest bonds, come up with a game plan that envisions rising interest rates. How are you going to adjust?
If you are really concerned about the future of the economy and the market, look to gold. Gold has historically been the refuge during time of economic upheaval, but it’s value has also dropped dramatically in different circumstances. Only a small part of your holdings should be in gold.
The answer is not very simple, but I’m going to make a stab at it…
The subprime loan crisis has made banks very reluctant to make loans. Not only that, they are going to get stuck with billions of dollars of worthless properties that they cannot sel. This means that they are reluctant to make loans- and this in turn is making money expensive.
Since money is scarse people are afraid of spending it, so the economy is basically at a standstill.
Other nations seeing this lack of economic growth are investing their money into commodities such as gold and oil dropping their investments in dollars which are turn losing value.
The more the dollar is weak, the more expensive oil and gas and other currencies will become.
To continue, the price of oil has made ethanol which is a corn derivative more lucrative. Which means that the cattle herders now have to compete with the energy industry for corn. This will make the price of meat a luxury very shortly.
The war in iraq is destroying our economy